AgentMortgage

Best time to take out mortgage when buying home

Paying cash, refinancing later has its benefits

Q: I have enough cash to swing an all-cash purchase if I want to, but I don't want all of my money tied up in the house; I want to get some of it back in a mortgage. What is the downside of paying cash and taking out the mortgage later versus taking out the mortgage at the time of purchase? A: The downside of taking the mortgage after you have purchased the house is that the mortgage will then be classified as a "cash-out refinance" as opposed to a "purchase mortgage." Why does that matter? Cash-out refinance loans are viewed as riskier than purchase loans, and therefore are priced higher. On prime loans, the rate difference is about 0.125 percent. Only a small proportion of those who take cash-out refinances have houses that don't already have a mortgage, as in your case. Most have a mortgage and want to raise cash, and some of those are in financial distress and end up in default. That's why cash-out refinances have higher loss rates than purchase mortgages, and are charged a highe...